Two offers, two different pricing conventions. Here's the math to translate factor rates into APR so you can compare apples to apples.
If you've gotten two offers — one quoting a 22% APR and one quoting a 1.28 factor rate — you've already hit the trickiest comparison in small business finance. They're priced in different units. Without converting them to the same scale, you can't tell which is actually cheaper. Here's the math, in plain English.
APR (Annual Percentage Rate) is the cost of borrowing expressed as a percentage of the principal, normalized to one year. A $50,000 loan at 22% APR over 24 months means roughly $11,000-12,000 in total interest, repaid in 24 monthly installments. Pay it off in month 12 instead of 24 and you save half the interest.
A factor rate is a multiplier on principal. 1.28 means you'll repay 1.28 × the amount funded — total. A $50,000 advance at a 1.28 factor means $64,000 total repayment, regardless of how fast you pay it.
Crucially: factor rates ignore time. A 1.28 over 12 months and a 1.28 over 6 months cost the same dollars but the second one is twice as expensive in APR-equivalent terms because your money is tied up half as long.
To convert a factor rate to an approximate APR, use:
APR ≈ (factor − 1) × (12 ÷ months of repayment) × 100
So 1.28 over 12 months → 0.28 × (12÷12) = 28% APR-equivalent. 1.28 over 9 months → 0.28 × (12÷9) ≈ 37% APR-equivalent. 1.28 over 18 months → 0.28 × (12÷18) ≈ 19%. Shorter terms compress the same fixed cost into less time, which raises the APR-equivalent.
This is an approximation — the precise APR involves the daily debit pattern and is slightly higher because you're paying down principal as you go. But it's accurate within a few percentage points and good enough for decision-making. For the full framework with worked examples, a HowTo methodology, and a calculator that surfaces both simple-cost AND effective amortizing APR, see Factor rate to APR — the real cost of MCAs and RBFs.
You have two offers for $50,000:
On total dollars, Offer A is about $1,700 cheaper. But Offer A repays over 24 months vs. 9 months, so its impact on monthly cash flow is much lighter ($2,594/mo vs. roughly $7,100/mo equivalent for the MCA's daily debits). Choose based on whether your business can absorb the heavier daily debit, not just the total dollar cost.
APR and factor rates aren't the same and can't be compared by eye. Run the conversion every time. ClearValue Lending presents every offer with both numbers visible by default — that's the bare minimum any honest funding platform or broker should do. The CFPB and FTC both publish guidance on small business financing cost transparency. Ready to compare real offers side by side? Start on small business financing. For more on the underlying products, see MCA vs. bank loan and Short-term vs. long-term financing.
Use this approximation: APR ≈ (factor − 1) × (12 ÷ months of repayment) × 100. Example: a 1.30 factor over 9 months ≈ 0.30 × (12÷9) ≈ 40% APR-equivalent. A 1.30 over 18 months ≈ 0.30 × (12÷18) ≈ 20%. The true amortizing APR is slightly higher because daily debits pay down principal as you go, but this approximation is accurate within a few percentage points.
APR (Annual Percentage Rate) expresses cost as a percentage of principal, normalized to one year. It accrues over time, so paying off early reduces total cost. A factor rate is a fixed multiplier on principal — 1.30 means total repayment is 1.30× the funded amount, regardless of how fast you repay (unless the contract includes a prepayment discount).
MCAs are legally structured as the purchase of future receivables, not loans, so they fall outside the Truth in Lending Act's APR-disclosure requirements that apply to consumer credit. Eleven states (CA, CT, FL, GA, KS, LA, MO, NY, TX, UT, VA) now have commercial financing disclosure laws requiring APR-equivalent disclosure on small business MCAs sold in those states; most states still don't.
No. A 1.20 over 6 months can be more expensive on an APR-equivalent basis than a 1.30 over 12 months, because the shorter term compresses the same fixed cost into less time. Always run the APR conversion and look at both total dollar cost and APR-equivalent before comparing offers.
Demand five numbers in writing: total dollar cost of capital, APR-equivalent (even on factor-rate offers), repayment schedule (monthly, weekly, daily), term length in months or business days, and prepayment treatment (discount, no change, or penalty). Any lender who can't or won't provide all five is a red flag.
Depends on the term. A 22% APR term loan over 24 months costs about $12,300 in interest ($2,594/month). A 1.28 factor MCA over 9 months costs $14,000 ($339/day debit). Total dollar cost is similar; cash-flow burden is very different — the MCA's daily debit equivalent is roughly $7,100/month. Choose based on whether your business can absorb the heavier daily debit.